Hot100 Profile: Threadneedle's Cormac Weldon

Cormac Weldon, manager of the Threadneedle American Select fund, tells Cherry Reynard how he has navigated the recent volatility in the US

The US markets have provided a dizzying ride over the past three weeks, but Cormac Weldon’s near decade at the helm of the Threadneedle American Select fund has taught him to be sanguine in the face of this type of volatility. As a result, the fund has seen few changes during the rout, despite Weldon admitting that he was more optimistic than the wider market at the start of the year.

He says: “Our thoughts were that companies had started to increase capital expenditure significantly in the second half of last year.

“Corporate balance sheets were in such good health and we assumed that would lead to employment creation and therefore higher economic growth.” However, he hedged his bets by investing in companies that could deliver good earnings growth even if the economy disappointed.

As a result, the fund has outperformed since the start of the year in spite of his macroeconomic views. Year to date, the fund is down 8.7%, against a sector average of 11.6%.

Longer term performance is still strong - over the past five years, the fund is up 29.9%, compared to a sector average of 14.8%. The fund’s most significant periods of outperformance came in 2007 and 2009.

Selection strength

Weldon’s strength has traditionally been in combining stock-picking and macro-economic analysis. His starting point is always the state of the economy and the extent to which that is reflected in market prices.

When selecting stocks, Weldon does not stick rigidly to a value or growth style and therefore the fund should be able to perform in all market conditions. He wants to find stocks where the risk and reward is well balanced. If he is right, the share price rise should be strong and if he is wrong, the losses relatively small.

It also helps him determine how much of the portfolio should be allocated to different stock ideas. The process is continuous, so Weldon can always judge whether a stock merits its place in the portfolio.

He has aimed to take advantage of the recent market volatility by picking up smaller and mid cap companies that have been knocked back. He adds: “We tend to have an emphasis on higher quality companies with predictability of revenue and earnings. Whether it is justified or not, we may get more volatility in markets. Markets tend to overshoot and that presents opportunities.”

Taking a position

The biggest position in the fund is in information technology with Apple, Oracle and Google among the largest holdings. Technology companies in general are likely to be beneficiaries of improving corporate expenditure. Weldon also has a significant position in consumer discretionary stocks, including Colgate-Palmolive.

His biggest underweight is in the energy sector and he has reduced this position still further in recent months. He says: “Energy prices are somewhat at risk given weaker economic growth. Also, in the industrial sector, which had performed very well, the risks were increasing.” He has therefore taken money out of the industrial sector as well.

Weldon believes that the recent weak growth figures in the US have come from the spike in energy and food prices earlier in the year. This took away from consumption and made people more cautious. He says that corporate earnings growth is still strong, at over 20% per year, despite the stagnant economy.

Political problems

Weldon says that he is disappointed by the recent political deadlock in the US, but not surprised. He adds: “It is a pre-election year and they tend to be very politicised. Each party is aiming to shore up its core voter and have to defend themselves. I am disappointed that agreement was not reached sooner and a better deal was not done, but the debt situation will have to be dealt with, and it will be.”

However, that is not to say that he is completely sanguine on the debt problems. He adds: “The trouble is most official government assumptions on the debt are based on growth assumptions that are too optimistic. The cuts may have to be deeper than previously thought and will require a well thought-out plan.” He does not believe that anything will come to fruition next year, but expects to see significant political action on the deficit after the election next year.